GBP/USD has risen well since it hit a recent low of 1.2156 on May 13th. The price is currently in a previous area of consolidation. This gives it potential to break out and rise to targets of 1.2775 and 1.30.
The first area of resistance is just above, at the top range of consolidation, roughly 1.261-1.264. If price can breakout of this range, we could see the price rise towards the next level of resistance, 1.2775 and then finally up towards 1.30 again.
In terms of fundamental drivers, we’ve seen some better UK data over the past week that’s help to bring the pair off the lows. For example, the unemployment rate fell to 3.7%, the lowest level in 40 years. A strong tight labour market is one element that could help to prevent GDP falling into negative territory come the end of the year. Aside from this, we’ve also seen a slight pullback in US yields, as investors become slightly more cautious about the aggressive pricing in the short term rates space.
On the flipside, the support seen at 1.3000 now flips into resistance on the way back up. We fell below this level finally last month, after testing it several times in April. The break came following the sharp pop in US bond yields, which also triggered the start of the slump in the stock market. With a lot of long GBPUSD stops also at 1.3000, the break was exacerbated, with short positions piling in as they knew the trap door was opened, with a lack of any real support on the way down.
However, if the price were to fail the first resistance of 1.261, we could see demand weaken and the price fall back down to these recent lows of 1.2156.
Ultimately, we are bullish on GBP and think the demand will increase and drive the price further.